Building the Board

A strong board of directors can make all the difference to a growth company. Here's how to draft one.

Business 101

Is recruiting a board of directors really worth it? Absolutely -- if you want your company to grow

How much does a strong (or even a not-so-strong) board of directors really matter to a growth-oriented company? It might be the difference between success and failure.

Just ask Sally J. Smith, the president and CEO of Buffalo Wild Wings Inc., the Minneapolis-based franchisor of Buffalo Wild Wings Grill & Bar restaurants. Smith was recruited to the company in 1994 by a disgruntled investor who had lost faith in the business's management team and profitability prospects. "There wasn't any reliable accounting system in place," she recalls. "Even though some of the restaurants in the chain were doing more than a million dollars' worth of business a year, the company was losing money -- although nobody knew how much." One of the biggest strikes against it was a do-little advisory board that lacked sophisticated financial expertise and was unable to challenge the company's two founders. "We were on the verge of a major cash-flow disaster," says Smith, who started out in the role of chief financial officer and was later promoted to the top leadership post.

Working with two new advisory board members, including Buffalo Wild Wings' outside investor, Smith got to work on forming a strong new board of directors, one with the business qualifications and leadership authority necessary to force the entrepreneurial company back on track. Under the strengthened board's direction, Smith focused on two key objectives: revamping the company's accounting systems in order to give board members the timely, accurate financial reports they needed; and creating a series of financial plans to provide the board with specific turnaround goals, time frames, and standards of accountability. And the strategy worked: since 1996, sales have increased by more than 65%, to about $30 million this year, and the company is once again profitable.

For a private company struggling to navigate its way through the challenges of fast growth and the often treacherous capital markets, a strong board can provide valuable assistance in all kinds of ways. Unfortunately, many entrepreneurs are so worried about control that they either opt for no board at all or pad their boards with longtime friends or family members.

Either approach can become a costly mistake. "What entrepreneurs often don't realize is that a strong board can help a young or growing company build credibility in the outside world," explains Bill Vogelgesang, a managing director and principal in the Cleveland office of Brown, Gibbons, Lang & Co., an investment-banking firm. "A good board -- especially one with heavy involvement from other CEOs and decision makers -- reflects well upon a chief executive because it shows that he or she can take criticism and doesn't just want to impose one business vision on the company."

Savvy businesspeople often know the benefits of an activist board from past experience. Bruce Fador, president and CEO of Boston-based WorldStreet Corp., a Web-based securities-industry company, learned of the importance of such a board when he was running fast-growing First Call Corp.

"At WorldStreet, I've got seven people on my board now -- six of them outsiders," says Fador. With the three-year-old company in an intensive-growth phase, fueled by a recent $15-million round of financing, the CEO meets with his board every six to eight weeks. "I have confidence that they will kick my butt in a very focused way, if that's appropriate," he says. "We all need to be at industrial strength as we work toward our next level."

For entrepreneurial companies interested in setting up boards of their own that will build credibility and enhance growth strategies, here are five points to keep in mind:

1. Creating an effective board does involve taking some risks. Ben Boissevain, a managing director of E-Technologies Associates, a New York City-based investment-banking and -advisory firm, often sits down with his entrepreneurial clients to warn them that the key issues are "control, credibility, and access." He explains: "A well-connected board of experienced outsiders will give your company a lot of credibility in the business world as well as potential access to financing sources and other business opportunities. The countervailing force, which you also need to take seriously, is that you give up some measure of control the more outsiders you put on your board." Translation: a strong, active board -- with a majority of members from outside the company -- has the power, at least in theory, to replace a company's management if it loses confidence.